Real estate PE funds find it tough to raise funds

Real estate-focused private equity (PE) funds, which have seen falling returns in last three years, are now finding it hard to raise liquidity for the new funds in the sector.

So you have a $500-million infrastructure and realty-focused fund from a well-known private bank that is unable to raise the amount for more than eight months. "Investors have got cautious," a former head of the fund told HT.

"Earlier, PE players would go to investors and pitch the India growth story, and there you were, raising liquidity," said Avinash Gupta, head, financial advisory, Deloitte India. "But now, with many PE funds unable to give returns, investors are getting cautious, asking questions and researching a lot before committing investment."

While PE funds had earlier promised returns above 20% to investors, only a handful of them were actually able to fetch the amount, said industry experts.

Executives at realty funds said that though the going was tough, "our fund is doing good in the current situation."

Analysts, however, said that often investors take the caution too far and are just not willing to invest in the sector at all. "Investors should avoid overly pessimistic view during the downturn cycle, perceiving real estate as more risky than it actually is," said Ramesh Nair, MD, west, Jones Lang LaSalle India.

Only a couple of funds have managed to tick 20% returns in past five years, that too not on all projects, analysts said. "I had invested in a realty fund in 2005 and was promised anywhere between 20% to 30% returns, but till date I have not got any," said an investor who had invested in a Mumbai-based realty fund.

While earlier funds were able to raise liquidity within three months, now the average time is about six months. That, too, if the fund has a proven track record.

"Investors are cautious and there are many reasons to it, but they also see the track record of funds," said a top official of a PE fund. "We have managed to give good returns to our investors and with our new rental fund, investors will have lesser risk."